Gray v. Travelers Indemnity Company

• Citation: 280 F.2d 549
• Decision Date: 11 July 1960
• Docket Number: No. 16482.,16482.
• Parties: Wally GRAY and Maryland Casualty Company, a corporation, and Northern Commercial Company, a corporation, Appellants, v. TRAVELERS INDEMNITY COMPANY, a corporation, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

280 F.2d 549 (1960)

Wally GRAY and Maryland Casualty Company, a corporation, and Northern Commercial Company, a corporation, Appellants, v. TRAVELERS INDEMNITY COMPANY, a corporation, Appellee.

No. 16482.

United States Court of Appeals Ninth Circuit.

July 11, 1960.

Sullivan & Offenbacker, Phillip Offenbacker, Seattle, Wash., Miracle, Treadwell & Pruzan, Seattle, Wash., for appellants Gray and Maryland Casualty Company.

Jones & Grey, Seattle, Wash., for appellant Northern Commercial Company.

Arthur Grunbaum and Solie M. Ringold, Seattle, Wash., for appellee.

Before MAGRUDER, HAMLEY and MERRILL, Circuit Judges.

MAGRUDER, Circuit Judge.

Green-Birch, a joint venture, deposited into the registry of the district court the sum of $38,865.11, a balance owed by the depositor to Oneco, Inc., for work completed by Oneco as a subcontractor upon certain facilities at Ladd Air Force Base in Alaska. After the claims of various parties had been settled, the fund, amounting to $18,505.83, was contested on the one hand by The Travelers Indemnity Company, a Connecticut corporation, and on the other by Wally Gray, a Washington resident, Maryland Casualty Company, a Maryland corporation, and Northern Commercial Company, a Delaware corporation. Since the sum in question exceeded $500, and since two or more of the adverse claimants were of diverse citizenship, jurisdiction attached under the interpleader statute, 28 U.S.C. § 1335. See Blair Holdings Corp. v. Bay City Bank and Trust Co., 9 Cir., 1956, 234 F.2d 513; 3 Moore, Federal Practice, para. 22.09 (1948), especially note 30 at page 3033 (collecting cases). Wally Gray, Maryland, and Northern appeal from a judgment in favor of Travelers.

The chronology of transactions in the case is as follows:

April 14, 1955 — Travelers executed a bond for Oneco guaranteeing Oneco's performance of a contract between it and Maynard R. Smith.

July 1, 1955 — Travelers and Oneco executed a general agreement of indemnity in favor of Travelers. We shall discuss this indemnity agreement at some length below.

September 20, 1955 — Travelers executed two more bonds for Oneco, one guaranteeing Oneco's performance of its contract with Green-Birch, the other guaranteeing Oneco's performance of its contract with Islands, Anderson, Monten & Benson.

June 11, 1956 — Travelers filed with Green-Birch a photostatic copy of its general indemnity agreement with Oneco. As of this date Oneco was indebted, under its contract with Green-Birch, to various suppliers and materialmen.

June 16, 1956 — All funds due from Green-Birch were assigned by Oneco to Wally Gray and Maryland as security for a debt incurred by Oneco through its failure to pay premiums upon general liability and workmen's compensation insurance policies. Presently, Oneco owes Maryland and Wally Gray $16,140.07.

July 2, 1956 — Green-Birch was notified of the June 16 assignment.

July 30, 1956 — Green-Birch paid the Territory of Alaska taxes due from Oneco because of activities in regard to the Green-Birch contract. The money was paid out of the sum which Green-Birch owed Oneco under the contract.

October 15, 1956 — Oneco assigned to Northern $20,000 of the amount owing from Green-Birch as security for $20,000 worth of debts owed Northern by two other firms. These debts are still outstanding.

October 19, 1956 — Northern gave Green-Birch notice of the assignment.

May 15, 1957 — By this date Travelers had paid out approximately $9,300 under the bonds it executed for Oneco guaranteeing performance of the contracts with Smith and with Islands et al. As of now Travelers is a defendant in pending litigation instituted by Smith in order to collect about $18,000 on the bond which Travelers issued for Oneco on Smith's contract.

The crux of the matter is the meaning of the general indemnity agreement between Travelers and Oneco and the priority which it establishes as against other assignees. The heart of this instrument, and the principal bone of contention among the parties, is paragraph 6, which reads as follows:

"6. If such bond be given in connection with a contract, the Company is hereby authorized, but not required, to consent to any change in the contract or in the plans or specifications relating thereto; to make or guarantee advances or loans for the purposes of the contract without the necessity of seeing to the application thereof, it being understood that the amount of all such advances or loans, unless repaid with legal interest by the Contractor to the Company when due, shall be conclusively presumed to be a loss hereunder; in the event of the abandonment, forfeiture or breach of the contract, or the breach of any bond given in connection therewith, or the failure, neglect or refusal to pay for labor or materials used in the prosecution of the contract, to take possession of the work under the contract and, at the expense of the Indemnitors, to complete the contract, or cause, or consent, to the completion thereof. The Indemnitors hereby assign, transfer, and set over to the Company (to be effective as of the date of any such bond, but only in the event of a default as aforesaid), all of their rights under the contract, including their right, title and interest in and to all subcontracts let in connection therewith; all machinery, plant equipment, tools and materials which shall be upon the site of the work or elsewhere for the purposes of the contract, including all materials ordered for the contract, and any and all sums due under the contract at the time of such abandonment, forfeiture, breach, failure, neglect or refusal, or which may thereafter become due, and the Indemnitors hereby authorize the Company to endorse in the name of the payee, and to collect any check, draft, warrant or other instrument made or issued in payment of any such sum, and to disburse the proceeds thereof."

We think the language clearly contemplates an assignment (1) to take place as of the date the surety executed a bond for Oneco on a specific contract, (2) to transfer funds due but not yet paid to the principal under the specific contract, and (3) to be conditioned on a default by Oneco upon the specific contract involved. The obvious purpose of the assignment is to secure the surety against the possibility that Oneco may not in the future be able to live up to its promise to indemnify the surety. What is not so obvious is which possible obligations of Oneco are secured.¹

Contrary to appellants' argument, paragraph 12 of the agreement does not render the assignments under paragraph 6 revocable. The former provision specifically states that obligations between the parties which are extant at the time of revocation are not thereby nullified. Since paragraph 6 contemplates an assignment upon execution of the bond guaranteeing performance rather than upon the date when the condition of default occurs, the obligation under the assignment is created once the bond is executed. Therefore, the power to revoke pursuant to paragraph 12 cannot affect a paragraph 6 assignment even though the general agreement can be terminated prior to a default by the principal under a guaranteed contract.

Appellants also contend that default by Oneco on the Green-Birch contract cannot be deemed the sole condition of the assignment contemplated by paragraph 6; that the assignment is also conditioned on the surety's completion of the contract and/or the suffering of a loss by Travelers on its bond guaranteeing Oneco's performance to Green-Birch. However, if paragraph 6 is interpreted as suggested by appellants, the assignment provision is meaningless; for when a surety, in discharging its obligation under bond, completes a contract for a defaulting principal or sustains a loss upon its bond, it becomes subrogated to the rights of the obligee in the fund which the obligee has retained, in this case Green-Birch's rights to the money owed Oneco. And the rights created by subrogation accrue as of the time the surety executes its bond guaranteeing performance. Thus, even without paragraph 6, had Travelers completed the Green-Birch contract or sustained a loss on the bond issued to Oneco for that work, it would have been subrogated as of the time the Green-Birch bond was executed to whatever rights Green-Birch had to the money owed Oneco. See Prairie State Bank v. United States, 1896, 164 U.S. 227, 17 S.Ct. 142, 41 L.Ed. 412; Henningsen v. United States Fidelity & Guaranty Co., 1908, 208 U.S. 404, 28 S.Ct. 389, 52 L. Ed. 547; Danais v. M. De Matteo Const. Co., D.C.D.N.H.1952, 102 F.Supp. 874; United States Fidelity & Guaranty Co. v. City of Montesano, 1931, 160 Wash. 565, 572, 295 P. 934, 937; Exchange Bank & Trust Co. v. Texarkana School District No. 7, 1957, 227 Ark. 759, 301 S.W.2d 453. In the light of these decisions, to read paragraph 6 as appellants contend would be to ignore the rule of contractual construction to the effect that an interpretation ought not to be adopted which would render the document meaningless. See Andrew Jergens Co. v. Woodbury, Inc., D.C.Del.1921, 273 F. 952, 959, affirmed 3 Cir., 1922, 279 F. 1016, certiorari denied 1922, 260 U.S. 728, 43 S.Ct. 92, 67 L.Ed. 484; Peavy-Byrnes Lumber Co., Inc. v. Long-Bell Lumber Co., D.C.W.D.La.1944, 55 F.Supp. 654, 659, affirmed 5 Cir., 1945, 150 F.2d 49; Thomas Hoist Co. v. William J. Newman Co., 1937, 365 Ill. 160, 6 N.E.2d 171, 174.

Since paragraph 6 cannot fairly be read to require the occurrence of conditions other than default under the Green-Birch contract, appellants' argument that the contract is fatally vague is without merit.

The next problem is to determine what contingent, future obligations of Oneco to Travelers are secured by the assignment of the Green-Birch funds under paragraph 6. To begin with, it is abundantly clear that the assignment called for by paragraph 6 is an assignment for security purposes. Travelers could not reap benefit from the assignment if no obligation running from Oneco to the...